Bringing Smiles - 科研製薬株式会社 · employs a recombinant human basic Fibroblast Growth...

Annual Report 2014Year Ended March 31, 2014

KAKEN

PHA

RMA

CEU

TICA

L Annual Report 20

14 Bringing

EveryoneSmiles

to

The origins of Kaken Pharmaceutical Co., Ltd., can be traced back to the Institute of

Physical and Chemical Research (RIKen), which was established in 1917.

In 1948, the Company started its pharmaceutical business by developing a new way

to manufacture penicillin utilizing Riken’s own technologies. It has since broadened the

scope of its business activities to include the manufacturing and sales of drugs such as

streptomycin, an antituberculosis drug, and various antifungal agents.

The Company is particularly strong in the field of orthopedics, dermatology, and

internal medicine. In the field of orthopedics, Kaken boasts the accomplishment of

introducing medical treatment for osteoarthritis that involves the intraarticular

injection of sodium hyaluronate.

Since 2001, the Company has been marketing Fiblast Spray, a wound-healing agent that

employs a recombinant human basic Fibroblast Growth Factor (bFGF). This was the first drug

in the world to employ bFGF. Kaken continues to advance research efforts in this field.

The Company is also focused on the fields of inflammation, allergies, and pain relief, as well as that of

fungal infection. In addition, in 2014, Kaken received marketing authorization for efinaconazole, an original drug

developed by the Company that is now Japan’s first topical antifungal agent for onychomycosis.

Profile

Bringing

EveryonetoSmiles

Forward-looking Statements

This annual report contains forward-looking statements pertaining to the Company’s business and prospects. These statements are based on the current

analysis of existing information and trends. Actual results may differ from expectations due to unforeseen risks and uncertainties.

Creating joy as a companyWe recognize our social

responsibility as a pharmaceutical company with a high ethical standard and society’s trust.

Creating joy for patients

We strive to create and offer effective drugs that satisfy the needs of patients and

medical professionals.

Creating joy for our employees

Our objective is to become a company with vitality and

presence whose employees enjoy and take pride in their work.

Business Philosophy

KAKEN

Three Joys

Kaken helps improve the quality of life for patients by serving as many people as possible

to return smiles of happiness to their faces, through supplying superior pharmaceuticals.

Corporate Philosophy

11.6

13.7 13.5 14.0 14.5

2013201220112010 2014

ROE%

Net Sales

87,997 88,94687,05486,42885,022

MILLIONS OF YEN

20142013201220112010

103.30

114.14

92.46 87.87

68.79

44.00 48.00

40.00 36.00

30.00

20142013201220112010

Cash Dividends per ShareYEN

Net Income per ShareYEN

Operating Income

15,18014,611

14,179

11,784

15,872

MILLIONS OF YEN

20142013201220112010

Total Net Assets

66,578 68,096

62,071 60,375 59,575

62.661.3 59.1 61.1 64.0

MILLIONS OF YEN

Capital Adequacy Ratio%

2013201220112010 2014

Net Income

8,2828,991

9,735

8,213

6,734

MILLIONS OF YEN

2013201220112010 2014

AnnuAL RePORT 2014 1

Contents2 President’s Message

4 Special Feature: Developing New Products

6 Overview of Major Products

10 Commitment and Excellence

13 Fulfilling Our Social Responsibilities

16 Board of Directors and Audit & Supervisory Board Members

17 Financial Section

47 Corporate Data

Consolidated Financial Highlights

246

(As of or for the years ended March 31)

KAKen PhARMACeuTICAL CO., LTd.2

President’s Message

Overview of Results for the Fiscal Year Ended March 31, 2014The fiscal year under review, ended March 31, 2014, resulted in a

2.2% year-on-year increase in net sales, to ¥88,946 million. Conse-

quently, operating income was up 8.6%, to ¥15,872 million. Simi-

larly, net income increased 8.3%, to ¥9,735 million.

Addressing Future Challenges for Continued GrowthThe Kaken Group is addressing future challenges with the aim of

maximizing corporate value and maintaining the trust of society.

•StrategicallyinvestinginR&DIn our R&d efforts, we selectively focus our investment of

resources and constantly strive to raise efficiency in order to

expand the product lineup. At the same time, we conduct joint

research and pursue strategic alliances with companies and

Tetsuo OnumaPresident and Representative director

Dear Stakeholders:In the fiscal year under review, ended March 31, 2014, sales vol-

umes for Artz, Seprafilm, and other mainstay products were up, as

were sales of generic drugs. Licensing revenues also increased. As

a result, we were able to achieve higher sales and income.

We increased dividend payments for the 12th consecutive year

and repurchased 1.8 million shares of treasury stock. In this way,

we worked to return profits to shareholders.

In the fiscal year ending March 31, 2015, we are targeting higher

sales and income, regardless of the impacts of the reduction in

drug prices of slightly more than 6%. In July 2014, we received

marketing authorization for KP-103, Kaken’s original topical anti-

fungal agent for onychomycosis, which is now Japan’s first topical

medication for this ailment. Overseas as well, licensee Valeant

Pharmaceuticals International, Inc., of Canada, received approval

to sell this drug in the u.S. and Canadian markets, which we

anticipate will contribute greatly to the Company’s earnings.

As for shareholder returns, we plan to issue total dividend pay-

ments of ¥54.00 per share in the fiscal year ending March 31, 2015,

making this the 13th straight year of increased dividend payments.

In addition, we intend to continue acquiring treasury stock.

Furthermore, we cancelled 5 million shares of treasury stock so

far in the fiscal year ending March 31, 2015.

At the same time, the Company will allocate management re-

sources toward in-licensing drugs, including both drugs that have

been approved and those under development, with the aim of

supplementing its current R&d pipeline.

Going forward, we will strive unceasingly to ensure Kaken

Pharmaceutical continues to be a company that is appealing to

investors. In closing, I would like to ask for your continued sup-

port as we undertake this endeavor.


research institutions in Japan and around the world, with the

aim of quickly introducing new research projects.

To expedite R&d efforts, we will outsource basic research

procedures, utilize contract research organizations (CROs), and

conduct overseas clinical trials while also participating in joint

international clinical trials.

•StrengtheningoursalesforceWe conduct sales activities in which our medical representatives

(MRs) work closely with local communities to supply medical

practitioners with high-value-added medical information ac-

cording to their needs. In addition, we provide medical informa-

tion by utilizing product-related websites and the mass media.

Additionally, we are expanding our market share in the field of

orthopedics to further solidify our position in that field. We are

also developing our generic drug business as a dominant pillar

of our operations.

•OptimizingoperationsandpromotingefficiencyWe are actively working to reduce the cost of sales ratio through

more-efficient investment and optimizing the placement of

employees, while reviewing product lines and standards. Also,

we are increasing the outsourcing of agrochemical production

to overseas companies.

•PromotingenvironmentalpreservationKaken recognizes that promoting environmental preservation is

a social responsibility. Therefore, we are conducting Company-

wide environmental preservation activities under the guidance

of the environmental Committee. For example, Kaken’s Shizuoka

Factory has obtained ISO 14001 certification.

Further information regarding Kaken’s environmental preser-

vation activities can be found in its Social and environmental

Report (Japanese only), which is available on Kaken’s website.

Basic Policy and Approach Concerning Returns to ShareholdersKaken believes that providing consistent shareholder returns is an

important task for management.

The pharmaceutical industry is relatively high risk, and therefore

companies operating in this industry must maintain a higher level

of equity capital than companies in other industries. however, we

aim to provide shareholder returns while maintaining a balance

with the need to secure sufficient equity capital. Accordingly, we

have established a flexible policy of dividend payments that are

based on operating results and also take this balance into consid-

eration. Retained earnings are used to maximize corporate value

through strategic investments in R&d and business infrastructure.

In principle, the Company makes dividend payments twice a

year, with the interim dividend being decided by the Board of

directors and the year-end dividend being decided at the general

meeting of shareholders.

In accordance with the aforementioned policy, we have decided

to increase both the interim and year-end dividends by ¥2.00 per

share, to ¥24.00, for a total dividend payment of ¥48.00 per share

in the year under review, making this our 12th straight year of

increased dividend payments.

Further, the Company acquired 1.8 million shares of treasury

stock in accordance with a decision made by the Board of directors.

In the fiscal year ending March 31, 2015, we intend to pay in-

terim and year-end dividends of ¥27.00 per share each, for a total

dividend payment of ¥54.00 per share.

Target Management Indicators and Long-Term Business StrategyTargeting future growth, the Kaken Group has set the medium-

term numeric target of consolidated operating income of ¥20.0

billion. In the future, we will endeavor to strengthen our founda-

tions to ensure our survival as a business that maintains a strong

presence in the 21st century.

June 2014

Tetsuo Onuma

President and Representative director


Developing

to Satisfy Unmet Medical NeedsNew Products

Kaken’s Specialty—Topical Antifungal Agent—The drug candidate KP-103 (efinaconazole), which was discovered through the outstanding antifungal

research at Kaken, has the potential to be the world’s first triazole compound for a topical medication for

onychomycosis. This drug has high antifungal activity and is effective against a wide spectrum of fungi.

Also, compared to other existing antifungal agents, its activity decreased only slightly even in the presence

of keratin, the main component of nails. This means that the drug has superior nail penetrating properties,

thereby suggesting that it will maintain its therapeutic effect in nails thickened by fungal infection or on

the underside of such nails. KP-103 has also shown antifungal activity in various animal models of infections

and, in particular, greater effectiveness than other treatment options in a guinea pig model for onychomy-

cosis. While oral medications are currently taken as a standard therapy for patients suffering from persistent

onychomycosis, KP-103 shows promise as a new treatment option by its featured topical approach.

In 2006, Kaken concluded a licensing agreement with dow Pharmaceutical Sciences, Inc. (dPS), of the

united States, for the development and marketing of KP-103 products in europe and the Americas. After

the acquisition of dPS in 2009 by Valeant Pharmaceuticals International, Inc., of Canada, Valeant has

continued the joint development activities with Kaken. In two multinational pivotal studies (Phase III)

in patients with mild to moderate onychomycosis of the toenails, this topical investigational drug

(uS development code: IdP-108) was found to be clinically and statistically superior to a vehicle for all

primary and secondary endpoints. The efficacy of this drug is competitive when compared to that of exist-

ing oral medications, and it has thus demonstrated its efficacy as a topical agent with fewer side effects.

In 2012, Kaken applied for marketing approval for KP-103 in Japan. In 2014, Kaken received the approval

certificate for this drug, making it Japan’s first topical medication for onychomycosis. Valeant also received

notice of marketing approval for this drug in the united States and Canada.

We will continue our efforts with overseas partners to acquire approval of this drug as a treatment for

onychomycosis in the global market.

Special Feature


Kaken’s Innovative Product for Tissue Regeneration:Fiblast SprayFiblast Spray is the world’s first product that commercializes

recombinant human basic Fibroblast Growth Factor (bFGF).

bFGF exists in almost all tissue in the human body. It is released

from the extracellular matrix once tissue is damaged by trauma

and ischemia, etc., after which bFGF acts on various cells and tissues

to stimulate tissue regeneration. While bFGF has a wide range of

functions, it is best known for its powerful abilities to stimulate

both cellular proliferation and neovascularization.

In 1988, Kaken obtained exclusive licensing rights for recombinant

human bFGF (trafermin) in Asia from Scios Inc., of the united States.

Following this, Kaken made continued R&d efforts, and as a result obtained marketing approval in Japan for

Fiblast Spray for the treatment of pressure ulcers and other skin ulcers (burn ulcers and leg ulcers) in 2001.

Further, as the Japanese regulatory authority completed reexamination of the product in 2010, Fiblast Spray

has reestablished its presence as a highly reliable drug in the medical market in Japan, and is now used with

confidence at a number of hospitals throughout the country.

In addition to its effectiveness in regard to regenerating skin tissue, trafermin has also demonstrated the

abilities to promote the proliferation and regeneration of both periodontal and bone tissues. In the field of

dentistry, trafermin is known for its ability to promote the regeneration of periodontal ligaments, cemen-

tum, and alveolar bone. After the completion of the phase III clinical trial that is currently underway, we

intend to file a new drug application of trafermin for the treatment of periodontitis.

In March 2005, Kaken acquired the worldwide rights to develop, manufacture, and market trafermin for all

therapeutic purposes. In June 2007, Kaken entered a licensing agreement with Sunstar Inc., regarding the

development and marketing of trafermin for dental applications in europe and north America. Further, in

november 2009, Kaken entered a licensing agreement with Olympus Corporation regarding the development

and marketing of trafermin for wound healing in europe and north America. Regarding the development and

marketing of Fiblast Spray, Kaken entered licensing agreements with a Chinese pharmaceutical company in

december 2005 and with a South Korean company in december 2006, respectively.

Going forward, in collaboration with our overseas business partners, Kaken will continue to further estab-

lish the presence of trafermin in the global medical market by fully utilizing the wealth of knowledge we

have accumulated regarding trafermin and its uses through our R&d efforts.

PROduCT COde IndICATIOn STAGe ReMARKS

KP-103 (IdP-108) Onychomycosis Approved Topical formulation;In overseas markets, Valeant Pharmaceuticals International, Inc. received approval in the u.S. and Canada

KCB-1d Periodontitis PIII bFGF

KAG-308 ulcerative colitis PI developed jointly with Asahi Glass Co., Ltd.;Oral-use prostaglandin analog

SI-657 enthesopathy PIII developed jointly with Seikagaku Corporation;Additional indication for ARTZ

New Drug Development Pipeline

Action Mechanism of Fiblast Spray

GRANULATIONTISSUE

Epithelialization StimulationReduction of wound area

Angiogenesis1. Activation of matrix degrading enzymes2. Migration of vascular endothelial cells3. Proliferation of vascular endothelial cells4. Formation of vascular vessel lumen

EPIDERMIS

DERMIS/SUBCUTANEOUSTISSUE

MUSCLE

BONE

Fibroblasts ProliferationStimulation of granulation formation

91.8%

5.8% 2.4%

Pharmaceuticals and Medical Devices

Agrochemicals

Non-ConsolidatedNet Sales

¥87,101 million(+2.1% yoy)

Renting Real Estate


Overview of Major Products

Pharmaceuticals and Medical DevicesIn pharmaceuticals, sales of Lipidil, an

anti-hyperlipidemia product, and

generic drugs were up, while Artz, an

antiosteoarthritis product that is one

of the Company’s mainstay products,

maintained sales of essentially the

same level as seen in the previous

fiscal year. however, Procylin, a drug to treat chronic artery occlusive

disease, and Adofeed, a pain- and inflammation-relieving plaster, expe-

rienced a decline in sales. In medical devices, sales were up for Se-

prafilm, an anti-adhesive absorbent barrier. due to these factors, in the

fiscal year under review, net sales for pharmaceuticals and medical

devices increased 2.0% year on year, to ¥79,941 million.

Renting Real EstateIn the real estate segment, the

majority of revenues are generated

through rent fees related to the

Bunkyo Green Court commercial

facility. net sales for the real estate

segment increased 1.7% year on year,

to ¥2,064 million.

AgrochemicalsAgrochemical sales rose, driving an

overall increase in sales in this cat-

egory, and net sales rose 5.2%, to

¥5,095 million, accordingly.

Distribution of Net Sales (Non-Consolidated)

In the fiscal year under review, non-consolidated net sales increased 2.1% year

on year, to ¥87,101 million.

20142013201220112010

YEARS ENDED MARCH 31

Net Sales (Non-Consolidated)MILLIONS OF YEN

79,66178,27676,40778,395 79,941

4,6304,319

4,843



4,7115,095

20142013201220112010



2,0262,045 2,0312,053 2,064

20142013201220112010



Pharmaceuticals and Medical DevicesArtzFuncTiOn: Anti-osteoarthritis product

Artz is an anti-osteoarthritis drug. Its

active pharmaceutical ingredient is

purified sodium hyaluronate extracted

from rooster combs, and it has viscoelastic, water-retentive,

and lubricating properties.

In 1987, Artz was introduced into the market as the world’s

first sodium hyaluronate drug indicated to treat osteoarthritis

by intraarticular injection. In 1989, an indication was added for

the treatment of shoulder periarthritis.

In 1992, Artz began being marketed in disposable pre-filled

syringes under the trade name Artz dispo. This was done with

the aim of making injection procedures simpler and faster, as

well as reducing the danger of infection.

In 2005, the drug was approved for an indication to treat knee

joint pain accompanied by chronic rheumatoid arthritis.

ProcylinFuncTiOn: Oral-use prostaglandin I2 analog product

Procylin is a drug used to treat chronic

artery occlusive disease containing

a prostaglandin I2 analog, beraprost

sodium, as an active pharmaceutical

ingredient. The drug has the effects of

both vascular vessel dilatation and plate-

let aggregation inhibition. It is the only oral-use prostaglandin I2

analog product in the world. It was developed by Toray Indus-

tries, Inc. and commercialized by co-development with Kaken.

Procylin improves blood circulation by platelet aggregation

and peripheral blood flow increase. It has an improvement effect

on ulcers, pain, and chills resulting from conditions associated

with arteriosclerosis obliterans (ASO) and thromboangitis oblit-

erans (TAO). The drug was launched in 1992. In 1999, Procylin

was approved for an additional indication to treat primary

pulmonary hypertension.

AdofeedFuncTiOn: Pain- and inflammation-relieving plaster

Adofeed is an antiphlogistic analgetic plaster. Its active pharma-

ceutical ingredient is flurbiprofen, a non-

steroidal anti-inflammatory agent that

functions as a powerful prostaglandin biosyn-

thesis inhibitor. Adofeed is absorbed directly

through the skin and is effective in treating

pain and inflammation caused by such condition as osteoarthri-

tis, shoulder periarthritis, tennis elbow, and muscle pain.

In 2008, we launched plasters that were double the size of the

Adofeed plasters previously offered. This allows patients to

choose the size most appropriate for their needs.

MentaxFuncTiOn: Anti-trichophyton product

Mentax is a topical product

used to treat superficial

mycosis containing butenafine

hydrochloride, a compound developed by Kaken, as an active

pharmaceutical ingredient. In addition to being available in

Japan, Mentax is offered in the united States, sold by Mylan

Pharmaceuticals, and is also marketed in a number of other

countries worldwide. In december 2001, Mentax received

approval as an over-the-counter (OTC) drug in the united

States. It has subsequently been sold in the united States by

Merck Consumer Care under the trade name Lotrimin ultra.

In Japan, Mentax received approval to be manufactured, and

it was subsequently launched as an OTC drug in 2003. Sales

of Mentax as an OTC drug in Japan are conducted by Takeda

Pharmaceutical Company Limited and Sato Pharmaceutical Co.,

Ltd. In 2004, a new spray formulation of Mentax was introduced

into the market.

LipidilFuncTiOn: Anti-hyperlipidemia product

Lipidil is a fibrate-type antihyperlipidemic

drug with fenofibrate, which was devel-

oped by Groupe Fournier SA of France,

as its active pharmaceutical ingredient.

The drug lowers triglycerides and total cholesterol, while

increasing hdL cholesterol, thus improving overall lipid

metabolism by activating peroxisome proliferator activated

receptor (PPAR ) in the liver cells to adjust the expression of

various lipid metabolism related proteins.

Lipidil is currently marketed in over 90 countries and much

clinical experience has been accumulated to date.

In 2011, Lipidil was released in tablet form. The change from

capsule to tablet has made Lipidil even easier for patients to take.

Fiblast SprayFuncTiOn: Wound-healing product

Fiblast Spray is a wound-healing drug

containing trafermin, a recombinant

human basic fibroblast growth factor

(bFGF) that has effects on the

promotion of angiogenesis and granulation formation,

as an active pharmaceutical ingredient. The entire dnA

sequence of the human bFGF gene was mapped by Scios

Inc., thus making it possible to manufacture recombinant

human bFGF. Kaken obtained a license to develop this

product, and subsequently launched Fiblast Spray, the

world’s first recombinant human bFGF product, in Japan

in 2001.


EbrantilFuncTiOn: 1 blocker to treat dysuria and hypertension

ebrantil is a sustained-release formulation of urapidil, which is

a selective 1 blocker. This product was initially placed on the

market in Japan in 1989 for the treatment of hypertension based

on its peripheral vasodilating effect. In 1995, it was approved for

the treatment of dysuria due to it having benign prostate hyper-

trophy as an additional indication. In 1999, it was approved for

the treatment of dysuria caused by neurogenic bladder, making

it the first 1 blocker in the world for this indication.

BerasusFuncTiOn: Oral-use sustained-release formulation of prostaglandin I2 analog

Berasus, which was approved for

marketing in October 2007 and

subsequently launched in december

of the same year, is a drug used to treat

pulmonary arterial hypertension (PAh). This product is a

sustained-release formulation of beraprost sodium, the active

pharmaceutical ingredient of Procylin, which was launched in

1992. This product can maintain more-consistent blood levels

in comparison with Procylin, which made it possible to reduce

the number of administrations and increase the daily dose.

As there are currently very few effective drugs available for the

treatment of PAh, Berasus is ranked as an important drug for

this disorder.

ClexaneFuncTiOn: Anticoagulant

Clexane is an anticoagulant containing enoxaparin sodium, a low

molecular weight heparin developed by Sanofi of France, as an

active pharmaceutical ingredient.

Clexane exhibits an anticoagulant effect by forming a complex

with antithrombin III that inhibits Xa and IIa activation factors.

Clexane is the first product of low molecular weight heparin

developed in Japan with an indication to suppress an onset of

venous thromboembolism (VTe). Clexane is recommended to be

used to suppress the sideration of VTe for the treatment of

patients who undergo podiatric or abdominal surgery under

domestic and international medical guidelines.

The product is currently used in approximately 130 countries

worldwide.

Generic DrugsIn Japan, people are being

encouraged by the govern-

ment to use generic drugs as

part of a movement to reduce

public healthcare costs. As a result, there has also been an in-

creasing trend in the medical field toward using generic drugs.

Kaken sees the future expansion of the generic drug market

as a significant business opportunity, and therefore is aggres-

sively increasing its presence in this market in order to take

full advantage of this opportunity.

SeprafilmFuncTiOn: Anti-adhesive absorbent barrier

developed by Genzyme Corporation

(current Sanofi) of the united States,

Seprafilm is a sheet-type anti-adhesive

absorbent barrier. Made from sodium

hyaluronate and carboxymethyl cellulose,

Seprafilm transforms into a hydrated gel within 24 to 48 hours

after being applied to tissue that has been damaged by surgery.

It then remains in place for approximately seven days, prevent-

ing adhesion by forming a physical barrier between damaged

tissue and the healthy tissue surrounding it.

There are currently four sizes of Seprafilm available, thus

allowing practitioners to select the size that meets the need.


Polyoxins ( fungicides)

Polyoxins are natural fungicides originating from micro-

organisms first discovered by dr. Saburo Suzuki and his team

at the RIKen Institute in 1963. They are produced by culturing an

actinomycete, Streptomyces cacaoi var. asoensis isolated from soil

of the Aso region in Kumamoto Prefecture, Japan. Polyoxins are

not a single compound, but are a complex consisting of a series

of compounds resembling each other in their chemical structure.

Currently, 14 different polyoxin analogues, polyoxins A through

n, have been discovered. Among them, the major active ingredi-

ent of Polyoxin AL, a polyoxin complex used for fruit trees and

vegetables, is a polyoxin complex consisting of polyoxin B and

other related compounds. Meanwhile the main active ingredient

of Polyoxin Z, used for lawns, is polyoxin d.

Polyoxins have been sold as horticultural fungicides for over

40 years and even now, they are still widely used. Polyoxin AL is

effective against a wide range of fungi-related diseases such as

mildew, gray mold, and other mold fungi diseases that affect

vegetables, flowers, and other plants.

Pentoxazone (rice herbicide)

Synthesized at the Sagami Chemical Research Center and

developed by Kaken, Pentoxazone is an oxazolidinedione-type

rice herbicide. In 1997, it was registered as an agrochemical in

Japan. Since then, it has been used as a herbicide for paddy rice

in its initial formulation and in several mixed formulations based

on this initial formulation. Pentoxazone is effective mainly on

annual weeds in rice paddies, such as barnyard grass, Lindernia,

and Monocholia, and is also widely effective on other weeds

including Eleocharis kuroguwai, a perennial weed that is difficult

to eradicate. Pentoxazone shows high, stable, and residual ef-

ficacy particularly on Lindernia and Monocholia, both of which

are resistant to sulfonylurea herbicides.

The safety of Pentoxazone is high for rice paddies and there-

fore it can be used in a variety of ways. Its initial formulation can

be used on rice paddies before or after the rice is transplanted

and its one-shot herbicide formulation can be used at the same

time as rice planting. There are also formulations approved for

flooding and direct seeding in rice paddies.

having extremely low water solubility and high soil absorb-

ability, Pentoxazone hardly flows out to groundwater and

rivers. Furthermore, it has low toxicity to humans, animals,

and other living beings. For these reasons, it is an environmen-

tally safe herbicide.

Salinomycin (anti-coccidial for chickens)

Salinomycin sodium is a polyether antibiotic originally discov-

ered in a culture of Streptomyces albus, a strain of Actinomycetes

in 1968. Later, it was developed as a feed additive by Kaken.

Salinomycin sodium is currently the most widely used anti-

coccidial worldwide, having effectiveness against Clostridium

and other gram-positive bacteria. Produced in accordance with

Good Manufacturing Practices (GMP), Salinomycin sodium

is not only used in Japan but also exported, thus supporting

poultry farmers worldwide.

Colistin sulfate (polypeptide antibiotic)

Colistin sulfate is a polypeptide antibiotic that was originally

discovered in a culture of Bacillus colistinus taken from the soil in

Fukushima Prefecture, Japan. Colistin sulfate is effective against

gram-negative bacteria such as E. coli and salmonella, which are

serious pathogens for livestock. Accordingly, there is a great

demand domestically and internationally for this product.

Therefore, Kaken also exports this product worldwide.

Agrochemicals

Animal Health Products


Commitment and Excellence

R&D DivisionAs a pharmaceutical manufacturer, Kaken is dedicated to conduct-

ing R&d activities while always maintaining the goal of develop-

ing proprietary medicines. Kaken focuses its drug discovery

efforts on areas in which it is particularly strong including inflam-

mation, allergies, and pain relief, and also maintains its focus on

the area of fungal infection in which it specializes, devoting a

great deal of financial and human resources to these research

themes. It utilizes the technologies it has developed through its

experience over the years and superior research staff in the pur-

suit of new drugs that are both effective and safe. In this manner,

Kaken is continuing to implement active drug discovery programs.

The R&d division is presently staffed by approximately 300

employees. Kaken estimates that research and development ex-

penses will be around ¥8.2 billion during the current fiscal year.

The R&d division also works to more actively evaluate products

as potential candidates to be introduced into Kaken’s pipeline

of clinical development. At the same time, the division employs

a multifaceted approach toward R&d activities, which entails

engaging in joint research and development, in- and out-licensing

of developed products, and outsourcing of its operations to such

organizations. This serves to accelerate its R&d initiatives.

Kaken’s Central Research Laboratories consists of two different

facilities, one located in Kyoto, the old capital of Japan, and the

other located in Shizuoka. At both facilities, drug discovery proj-

ects, which require long, arduous research as well as unique, spe-

cialized knowledge, are conducted. In order to ensure that these

projects progress efficiently, researchers make full use of state-of-

the-art equipment and technologies, and encourage effective

communication and the clear division of responsibilities. The

Research Laboratories are divided into five different sections. The

Chemistry Research department specializes in the synthesis of

chemical compounds, the “seeds,” from which new drugs are

created. The drug discovery Research department seeks out

novel drug targets, screens chemical compounds, and evaluates

selected candidates from screening. The Pharmacology Research

department evaluates the usefulness of candidate compounds

developed through drug discovery research and compares these

compounds to other drugs. The Pharmacokinetics and Safety

Research department assesses how candidate compounds behave

within the body and evaluates the safety of candidate compounds

for use on humans through non-clinical studies. The drug Formu-

lation Research department identifies the physicochemical prop-

erties of compounds and develops formulations of these

compounds that guarantee their stability and maximize their

effectiveness when used on patients. These five sections advance

Kaken’s R&d efforts through collaborative, coordinated efforts.

Kaken’s R&d activities have earned us a number of awards.

In 2009, Kaken’s scientists were awarded the Asahi Kasei

encouraging Award from the Academy of Pharmaceutical Science

and Technology, Japan (APSTJ) for utilizing novel technology in

the development of Itraconazole products. Additionally, in 2011,

a paper written on the Formulation design of Latanoprost eye drops

received an award as an excellent paper from the APSTJ. Later, in

2012, another scientist was awarded the Best Presentation Award

for the 27th annual meeting of APSTJ for its research regarding

“In Vitro—In Vivo Correlation of Percutaneous drug Absorption.”

These recognitions have further reinforced the high reputation

of Kaken’s fundamental technology. By leveraging such superior

research technologies, the Company aims to continue to acceler-

ate and expand its R&d efforts.

Only candidate drugs that have cleared a number of non-clinical

studies regarding safety and pharmacokinetics, as well as effec-

tiveness of the drugs, are allowed to proceed onto clinical trials


in which the drugs are administered to humans. After testing

candidate compounds that have been developed through drug

discovery research or introduced from outside partners, the Clini-

cal development department plans and conducts efficient clinical

trials for these compounds both in Japan and overseas to verify

their efficacy and safety on human subjects. In addition to devel-

oping its original drugs, Kaken also engages in joint development

with other companies or organizations. Recently, a successful

global clinical trial was jointly conducted between Kaken and a

foreign company, which has entered into a licensing agreement

regarding the development and marketing of a compound created

originally by Kaken. The Administration of Clinical development

department is responsible for all areas of statistical analysis. It also

manages case data from clinical trials and information related to

the safety of the drugs under investigation, and works to maintain

a certain degree of quality with regard to this data. Meanwhile,

the R&d Quality Assurance department assures the quality and

reliability of the data related to clinical trials that are conducted

by the Clinical development department. The R&d Quality Assur-

ance department also assures quality and reliability of the plans

and data related to the non-clinical studies that are designed and

conducted by research laboratories. These departments cooperate

with Kaken’s research laboratories in order to conduct clinical

trials as quickly as possible.

Further, while focusing on its areas of expertise, Kaken will

continue to collaborate with both domestic and overseas research

institutions in order to accelerate the progression of its drug

discovery research efforts. Also, the Company will introduce and

license new drugs and continue to seek out the “seeds” of new

technologies and drugs around the world. Moreover, by periodi-

cally discussing Kaken’s drug discovery strategies with and receiv-

ing advice from respected experts in Japan, the Company will

continue to ensure that its drug discovery programs are in-line

with present day needs.

Regulatory Affairs DivisionKaken’s Regulatory Affairs division consists of three departments:

the Quality Assurance department, the Pharmacovigilance

department, and the Regulatory Affairs department.

The Regulatory Affairs division is an embodiment of Kaken’s

sense of responsibility as a pharmaceutical manufacturer. This

division makes the final judgments regarding the quality, effective-

ness, and safety of the drugs that the Company supplies to the

medical field.

The Quality Assurance department assesses whether or not

each batch of drug is produced in the predetermined manner

and evaluates whether or not quality tests are compliant with all

applicable standards. The Pharmacovigilance department then

reviews the safety related information pertaining to these drugs

that has been collected from medical institutions using the drugs.

Following this, the Regulatory Affairs division makes comprehen-

sive judgments based on the findings of these two departments.

The Quality Assurance department conducts regular inspec-

tions and audits of both internal and external production plants,

thus gathering and assessing quality related information at these

plants in order to ensure the quality of their operations. The

Pharma covigilance department reports the safety related

information it has gathered and reviewed to both the regulatory

and internal organizations that require it. The department also

distributes this information to medical institutions by reflecting

the gathered information in the package inserts in the form of

information on the proper use of drugs in order to promote their

effective use.

The Regulatory Affairs department supervises and assists all

aspects of the Company’s manufacturing and sales activities, and

is also responsible for maintaining marketing licenses for its phar-

maceuticals. In addition to this, the department also participates

in the R&d process. It compiles the R&d division’s data regarding

production quality as well as data from both non-clinical and

clinical trials. After compiling this data, the department is then

tasked with gaining approval for use of our drugs and for listing

them in the national health Insurance drug Price List after

approval is obtained. The department is also responsible for

producing product literature for approved drugs.


Production DivisionKaken’s flagship production facility is the Shizuoka Factory.

here we manufacture the raw materials used to make pharma-

ceuticals and agrochemicals. The facility also produces a wide

variety of pharmaceuticals in various different forms. Operations

commenced after World War II, and initially it primarily manufac-

tured antibiotics and enzymes through fermentation. Over the

years, it has continued to refine these technologies, and now

one of its main characteristics is its use of sophisticated fermenta-

tion technologies.

In manufacturing pharmaceuticals, we practice strict adherence

to Japanese GMP (“Ministerial Ordinance on Standards for Manu-

facturing Control and Quality Control for drugs and Quasi-drugs,”

Ordinance of Ministry of health, Labour and Welfare, no. 179,

2004). Further, for products marketed overseas, we take steps to

ensure they are in compliance with applicable standards in the

united States and other countries in which they are sold. In such

ways, we have developed a stringent quality control system under

which we strive to manufacture products of the highest quality.

Marketing & Sales DivisionAt Kaken, we employ medical

representatives (MRs), who

are responsible for providing

medical practitioners in the

field with the latest information

regarding the Company’s drugs

and medical devices. These MRs

also gather information regard-

ing the safety and effectiveness

of Kaken’s products by actively

engaging in communication

with such medical practitioners.

They then provide feedback to internal departments based

on their findings.

Our approximately 750 MRs located throughout Japan work in

close contact with local communities, particularly in the fields of

orthopedics and dermatology, two areas in which we specialize.

On April 1, 2014, we strengthened our sales structures by

switching to a sales system based on a nationwide network con-

sisting of 8 branches and 63 sub-branches.

Agrochemical & Animal Health Products DivisionThe Agrochemical & Animal health Products division is

responsible for conducting global research, development, and

sales activities related to agrochemicals, feed additives, and

drugs for animals.

Our agrochemical operations are primarily focused on two

products—Polyoxins, which is a group of fungicides, and Pentoxa-

zone, a rice herbicide—and we are actively expanding sales of

these products both in Japan and overseas. Polyoxins are fungicides

produced by culturing microorganisms in a culturing medium

consisting of natural materials. For a number of years, these

products have been consistently evaluated highly by agriculture

producers around the world due to their safety for both humans

and animals, low environmental impact, and effectiveness for

use against disease damage on vegetables, fruit trees, lawns,

and flowers. These products were also recently proven to have

acaricidal properties, thus further expanding their range of use.

Pentoxazone is a rice herbicide effective against the vast array

of annual weeds found in rice paddies and has demonstrated

effectiveness against herbicide-resistant varieties of weeds

that have emerged recently. These factors make Pentoxazone

indispensable for rice farmers.

Our animal health products operations offer anti-coccidials for

chickens, including Salinomycin, which is a feed additive, as well as

Colistin sulfate, which helps prevent infectious diseases in live-

stock. We also supply a drug for bovine, known as uroston, thus

contributing to the production of healthy livestock and safe food.

Going forward, the Agrochemical & Animal health Products

division will continue contributing to the safety and reliability

of food production by developing and selling products that

are safe for both humans and animals, while also having a low

environmental impact.

Distribution DivisionAll distribution functions are outsourced to distributors that

specialize in the distribution of pharmaceuticals.

General Meeting of Shareholders

Board of DirectorsAudit & Supervisory Board

Audit & Supervisory Board Members

Accounting

AuditorPresident and

Representative

Director

Internal Audit Department

Managing Directors’ Meeting

Risk Management and

various other committees

Company-wide organizations,

Group companies

Corporate Governance System

APPOINT/DISMISS

AUDIT

AUDIT

REPORT

INSTRUCT

DELIBERATE

REPORT

PROMOTE

REPORT INSTRUCT, SUPERVISE

COORDINATE/REPORT

COORDINATE

REPORT

AUDIT

REPORT SUPERVISE

APPOINT/DISMISS

APPOINT/DISMISS

SUPERVISE

APPOINT/DISMISS


Fulfilling Our Social Responsibilities

Corporate GovernanceKaken’s management philosophy is centered on the three joys

of “creating joy for patients,” “creating joy as a company,” and

“creating joy for employees.” “Creating joy as a company,” one

of the three joys, is based on the principle that “Kaken aims to be

a company realizing its social responsibility as a pharmaceutical

company conducting its business with both a high ethical stan-

dard and society’s trust.” Accordingly, the tasks of “enhancing

corporate governance” and “ensuring the transparency of man-

agement,” as well as “providing our stakeholders with proper

explanations of the Company’s activities,” are placed among

our top management priorities.

Initiatives to Enhance Corporate GovernanceThe Company recognizes the fact that compliance is essential in

earning the trust of society. For this reason, we have established

Kaken’s Activity Principles and Guidelines, and consequently

strive to practice high ethical standards in our management.

Moreover, we realize that our business activities have a direct

impact on people’s lives and health. All of our employees are

thus fully aware of these principles and guidelines, and exercise

them in their daily work as they participate in this important

business pursuit.

ComplianceWe believe that compliance-based management is the most

fundamental key element in earning the trust of society and

promoting the healthy development of the Company. Moreover,

compliance is important in raising corporate value, which our

shareholders, investors, business partners, and the local commu-

nity will in turn benefit from.

Kaken’s Activity Principles and Guidelineseach executive and employee of Kaken and its subsidiaries

is strongly committed to compliance with all relevant Japanese

and foreign laws and regulations, respecting different

cultures and customs, and adopting high ethical standards

in business operations.

1. We recognize the preciousness of life and shall contribute

to the welfare of society by channeling all our efforts into

the enhancement of people’s health and patients’ quality

of life.

2. We recognize the importance of maintaining appropriate

relations with all medical practitioners as well as our

shareholders, investors, employees, business partners,

and local communities.

3. We shall compete in a fair and free manner, conducting our

business activities in an appropriate way.

4. We shall handle all the Company’s assets, including informa-

tion, in a legitimate and proper manner to facilitate the smooth

running of our business operations.

5. We shall respect the human rights and individuality of employ-

ees, pay attention to health and safety issues, and endeavor

to foster a fair and honest workplace culture.

6. We shall manage Company information appropriately and

disclose information in a timely and appropriate manner.

7. We shall take seriously the impact of our activities on

the global environment and contribute to society as a

good corporate citizen, including through environmental

protection efforts.

8. We shall not tolerate terrorism and other anti-social behavior.


Environmental Protection ActivitiesIn recent years, there has been a growing concern for various

environmental issues, such as preserving biodiversity. These issues

force corporations to reevaluate their interests in a number of

wide-ranging and complex areas, thus increasing the role that

corporations must play in addressing these issues. Of these issues,

we believe that addressing the need to preserve and restore the

natural environment is of particular importance for corporations.

Therefore, we will continue to exercise our corporate philosophy

by promoting environmental preservation and working to be a

good corporate citizen with the aim of creating a society that is

full of healthy, smiling faces.

In 1983, Kaken launched its environmental campaign by

establishing environmental Measures Committees at each of its

operational sites. These committees were assigned the task of

comprehensively addressing various CSR-related issues, such as

the need to preserve the natural environment, improve people’s

health and living environments, and reduce pollution.

Further, in 2004, we developed the Kaken Basic environmental

Philosophy and the Basic environmental Policies. Later, the

environmental Measures Committees were transformed into

the environmental Measures Task Forces in order to enhance their

ability to respond to such changes as the April 2009 revision of

the Act on the Rational use of energy. These task forces work in

cooperation with the environmental Committee to develop envi-

ronmental preservation measures with a particular focus on those

that relate directly to society. Additionally, we have taken several

steps to reinforce our environmental management activities,

including acquiring ISO 14001 certification for our Shizuoka

Factory in August 2001.

Looking ahead, we will continue to actively engage in environ-

mental management and social contribution activities at the

Company’s headquarters and all of its factory, research laborato-

ries, and sales and other branches, while developing a more com-

plete and aggressive approach toward environmental issues.

At the same time, we will work to reduce the environmental

impact of Kaken’s operations.

Recent Environmental Protection ActivitiesEnvironmentalMonitoringofBusinessActivitiesKaken believes that consideration for the natural environment

is one of its responsibilities toward society. For this reason, all

employees are made aware of the environmental circumstances

regarding all of its business operations, spanning from research

and development to production and back-office operations. This

includes input data related to usage of chemical substances and

energy, both of which impact the environment, as well as output

data on the emissions into water and the atmosphere and waste

production. Based on an understanding of this information,

reductions in environmental impact are being pursued.

WaterPollutionPrevention

Kaken is emphasizing initiatives that contribute to environment

preservation. For example, the Shizuoka Factory separates waste-

water from production activities into organic wastewater and

other wastewater. Organic wastewater then undergoes treatment

using active sludge, after which it is mixed with other wastewater

until the organic wastewater is diluted to below the maximum

level defined in wastewater standards. It is then dispelled into

rivers. To further its efforts to prevent water pollution, the factory

concluded an agreement with Fujieda City, Shizuoka Prefecture,

regarding pollution prevention in 1976. The factory has also estab-

lished internal standards based on which it periodically measures

its environmental impacts, and practices strict compliance with

environmental laws and regulations. In a similar manner, the Kyoto

Research Laboratories treat organic wastewater using active

sludge, and then mix it with wastewater from other systems be-

fore dispelling into public sewers. When dispelling such wastewa-

ter, the Kyoto Research Laboratories adheres to its own internal

standards, which are stricter than the standards of Kyoto City, and

it also periodically measures emissions and reports the findings.

Kaken’s River Beautification Activities

SetoRiver,ShizuokaPrefecture ShinomiyaRiver,KyotoPrefecture


AirPollutionPrevention

In order to prevent air pollution, the Shizuoka Factory installed

a city-gas fired boiler to replace its previous boiler, which used

fuel oil A. As a result, the factory has continued to boast zero

emissions of sulfur oxide (SOx) since 2007. The factory also evalu-

ates emissions of smoke dust twice a year, and emission volumes

are currently significantly lower than the figures promised in

its pollution prevention agreement with Fujieda City (less than

0.05g/m3n). Going forward, the Shizuoka Factory will continue

to strengthen its management systems to better prevent air

pollution.

ChemicalSubstanceManagement

Both the Shizuoka Factory and the Kyoto Research Laboratories

are managing chemical substances on a voluntary basis. In order

to reduce exposure to potential risks from using harmful chemical

substances, the Company considers possible revisions to its pro-

cesses for manufacturing and analyzing pharmaceuticals, and is

working to reduce the amount of solvents used and switch to less

harmful substances. In addition, regulations have been established

for handling harmful chemical substances and these substances

are stringently managed. In these ways, the Company is working

to prevent accidents and environmental pollution at all stages of

handling these chemicals, from purchasing to use and disposal.

The Company also manages chemical substances in an integrated

manner together with reagents, and safety data sheets (SdSs)

regarding the usage of such substances are kept up-to-date to

ensure readiness for emergencies.

WasteReductionandRecycling

As the Company’s operations involve using raw materials to create

products, the production of waste cannot be avoided. however,

the development of a recycling-based society requires that the

production of waste for final disposal be reduced to the greatest

extent possible. To this end, the Shizuoka Factory acts in accor-

dance with the Basic Law for establishing the Recycling-based

Society, and is actively practicing the 4Rs (refuse, reduce, reuse,

and recycle). In the fiscal year ended March 31, 2014, the total

amount of waste produced by the Shizuoka Factory was 5,625 tons.

Of this, 96% was sludge produced during treatment of wastewater

and residual materials from fermentation processes (animal and

plant remnants). All waste produced in this year was used for

composting. Going forward, the Company will continue to advance

activities promoting the reduction and recycling of waste.

Social Responsibility as a Pharmaceutical CompanyProductQualityAssuranceKaken believes that it is absolutely essential to possess a quality

assurance system in which both its headquarters (responsible

for sales and manufacturing of pharmaceuticals) and its factory

(responsible for manufacturing of pharmaceuticals) fulfill their

individual responsibilities while also maintaining close coordina-

tion. At Kaken’s factory, the effectiveness and appropriateness of

each manufacturing process and facility is evaluated to ensure

that manufacturing practices and quality are suitably managed.

Located in the Company’s headquarters, the Quality Assurance

department evaluates and confirms these activities, which is

believed will result in the creation of a more stringent quality

assurance system. however, this type of coordination is not lim-

ited to divisions related to quality. Rather, these activities have

been expanded to the R&d division, Production division, and

Marketing & Sales division to guarantee the utmost quality

throughout all stages of a product’s lifecycle.

SafetyAssuranceforPharmaceuticalsAfterLaunchnew pharmaceuticals receive marketing approval only after un-

dergoing stringent evaluations. however, these evaluations are

based on the results of clinical trials, which have a limited scope

in regard to such considerations as patient age and gender and

the range of drugs taken simultaneously. After drugs are launched,

they are used by a wider range of patients, and this can result in

the occurrence of unexpected side effects. For this reason, it is

necessary to continue to evaluate the efficacy and safety of drugs

even after they are launched, and respond to any issues that may

be discovered. To this end, the Company has established the

Pharmacovigilance department, which continues to collect,

evaluate, and analyze data regarding the efficacy and safety of

the pharmaceuticals Kaken sells after they are launched. It then

addresses issues and provides information regarding proper usage

methods to medical practitioners.

InformationProvisionbyMRsKaken deals in a wide range of pharmaceuticals. Kaken’s medical

representatives (MRs) are responsible for handling all of these

pharmaceuticals. For this reason, they are constantly taking on

new challenges in a wide range of fields, and play an expansive

role in the development of Kaken’s pharmaceutical operations.

MRs maintain an up-to-date, in-depth understanding with regard

to products so that they are always able to adapt to changes in

circumstances in the medical field. They also work to provide

appropriate response to the ever more complex, diverse needs

of medical institutions and medical practitioners. In addition,

MRs collect feedback from practitioners in the medical field

so that it may be utilized in efforts to improve existing products

and developing new drugs. Through these and other activities

coinciding with the corporate philosophy, MRs are providing

medical professionals with accurate information regarding

Kaken’s products.


Board of Directors and Audit & Supervisory Board Members

President and Representative directorTetsuo Onuma

Managing directorHirokazu Konishi(Marketing and Sales)

Managing directorYoshihiro Ieda(Administration, Corporate Planning & Coordination)

Managing directorNoboru Shibata(Accounting, Purchasing and Agrochemicals)

directorKazuki Sekitani(Research and development)

Outside directorEiki Enomoto

Audit & Supervisory Board MemberKazuo Shiba(Standing)

Audit & Supervisory Board MemberMasanori Aoyama(Standing)

Audit & Supervisory Board MemberSumio Yoshizawa

Audit & Supervisory Board MemberToshio Sakurai

(Standing, from left)

noboru Shibata, hirokazu Konishi, Yoshihiro Ieda, Kazuki Sekitani, eiki enomoto

(Seated)

Tetsuo Onuma

AnnuAl RepoRt 2014 17

Consolidated Five-Year Summary ��18

Management Discussion and Analysis ��18

Consolidated Balance Sheets ��20

Consolidated Statements of Income ��22

Consolidated Statements of Comprehensive Income ��23

Consolidated Statements of Changes in Net Assets ��24

Consolidated Statements of Cash Flows ��25

Notes to the Consolidated Financial Statements ��26

Report of Independent Auditors ��46

Financial Section

KAKen phARmAceuticAl co., ltd.18

millions of yenthousAnds of

u.s. dollARs (note)

2014 2013 2012 2011 2010 2014

foR the yeARs ended mARch 31

net sales ¥ 88,946 ¥ 87,054 ¥ 87,997 ¥86,428 ¥85,022 $ 872,020

operating income 15,872 14,611 15,180 14,179 11,784 155,608

net income 9,735 8,991 8,282 8,213 6,734 95,441

At mARch 31

total net assets 68,096 66,578 62,071 60,375 59,575 667,608

total assets 106,465 108,911 105,108 98,493 95,096 1,043,775

peR shARe dAtA yen u.s. dollARs (note)

net income (Basic) ¥114.14 ¥103.30 ¥92.46 ¥87.87 ¥68.79 $1.119

cash dividends (non-consolidated) 48.00 44.00 40.00 36.00 30.00 0.471

RAtios %

Roe 14.46 13.98 13.53 13.69 11.59

capital adequacy ratio 63.96 61.13 59.05 61.30 62.65

note: u.s. dollar amounts are translated, for convenience only, at the rate of ¥102 = $1.00, effective on march 31, 2014.

Consolidated Five-Year Summary

Operating Performancein the fiscal year under review, ended march 31, 2014, consolidated

net sales were up 2.2% year on year, to ¥88,946 million. As a re-

sult, operating income increased 8.6%, to ¥15,872 million, and net

income rose 8.3%, to ¥9,735 million.

Segment InformationPharmaceuticalsKaken’s pharmaceuticals segment consists of two core categories:

pharmaceuticals and medical devices as well as agrochemicals.

in pharmaceuticals, sales of Artz, an anti-osteoarthritis product

and one of Kaken’s mainstay products, were essentially un-

changed from the previous fiscal year. meanwhile, sales of lipidil,

an anti-hyperlipidemia product, as well as generic drugs were up.

however, procylin, a drug to treat chronic artery occlusive dis-

ease, and Adofeed, a pain- and inflammation-relieving plaster,

were down.

in medical devices, sales increased for seprafilm, an anti-

adhesive absorbent barrier.

in agrochemicals, sales grew overall.

As a result of the above, net sales increased 2.2% year on year,

to ¥86,483 million, and segment income* was up 9.0%, to ¥14,427

million.

net sales overseas were ¥5,031 million.

Real Estatein the real estate segment, the majority of revenues are generated

through rent fees related to the Bunkyo Green court commercial

facility. net sales for the real estate segment increased 1.1% year

on year, to ¥2,463 million, while segment income* increased 5.4%

year on year, to ¥1,445 million.* segment income is based on operating income.

Management Discussion and Analysis


Financial Positiontotal assets were ¥106,465 million as of march 31, 2014, down

¥2,446 million from the previous fiscal year-end, primarily due to

a decrease in notes and accounts receivable–trade. total liabilities

were ¥38,368 million, down ¥3,964 million, which was largely

attributable to the repayment of short-term bank loans. net as-

sets totaled ¥68,096 million, an increase of ¥1,518 million, follow-

ing higher retained earnings.

Cash Flowscash and cash equivalents as of march 31, 2014, totaled ¥17,457

million, an increase of ¥536 million compared with the previous

fiscal year-end. principal factors related to cash flows during the

year under review are as follows.

net cash provided by operating activities totaled ¥13,663 mil-

lion, an increase of ¥1,934 million compared with the previous

fiscal year-end, due to factors including a decrease in notes and

accounts receivable–trade.

net cash used in investing activities totaled ¥2,135 million, a

decrease of ¥4,657 million compared with the previous fiscal

year-end, due to factors including a decrease in purchase of in-

vestment securities.

net cash used in financing activities totaled ¥10,992 million, an

increase of ¥5,124 million compared with the previous fiscal year-end,

due to factors including the repayment of short-term bank loans.

Business Risksthe risk factors outlined below in relation to the company’s busi-

ness activities may materially affect the decision making of inves-

tors. the forward-looking statements that are made reflect the

Group’s judgment and forecasts based on information available to

us as of the end of the year under review. further, the risks faced

by the company are not limited to those listed below.

(1) Risks related to new drug development

substantial investment amounts and development periods of

more than 10 years are required before a new drug is launched.

the company develops new drugs while taking such factors as

the efficacy and safety of a particular drug into full consider-

ation. however, it is possible that the development process

could be halted before its completion.

(2) Risks related to the occurrence of side effects

clinical trials undertaken in the development stage involve the

trial administration of drugs to a limited number of patients.

consequently, once a drug is launched onto the market we

conduct post-marketing surveillance to supplement clinical

trials. in the event a new side effect is discovered at this stage,

sales of the drug could be halted.

(3) Risks related to policies to curtail medical expenses

As government initiatives to curtail healthcare expenses con-

tinue, various medical system reforms are being implemented.

these reforms may cause changes in the market environment,

which could subsequently affect the company’s performance.

(4) Risks due to competition

sales competition with other pharmaceutical companies may

result in a drop in the sales price of products. in addition, sales

of generic products by other companies may cause declines in

sales of the original product. such factors could subsequently

affect the company’s performance.

(5) Risks related to delay or cessation of product supply

the supply of products may be delayed or halted as a result of

various factors, such as problems with the company’s manu-

facturing facilities or the facilities of its suppliers, or delays in

the procurement of raw materials. these factors could affect

the company’s performance.

(6) Risks related to legal action

the company is exposed to the possibility of legal action in

the course of its business activities. such actions could affect

the company’s performance.


Consolidated Balance SheetsKaken pharmaceutical co., ltd. and consolidated subsidiaries

As of march 31, 2014 and 2013


u.s. dollARs (note 1)

ASSETS 2014 2013 2014

cuRRent Assets:

cash and deposits (Notes 3 and 9) ¥ 9,644 ¥ 9,710 $ 94,549

marketable securities (Notes 3, 4 and 9) 7,812 7,210 76,588

Receivables:

notes and accounts receivable–trade (Note 9) 25,363 31,174 248,657

Accounts receivable–other 1,009 1,016 9,892

26,373 32,191 258,559

Allowance for doubtful accounts (2) (3) (20)

26,370 32,188 258,529

inventories (Note 5) 13,222 11,531 129,627

deferred tax assets (Note 13) 1,127 1,117 11,049

other 324 225 3,176

total current assets 58,501 61,983 573,539

pRopeRty, plAnt And eQuipment (Notes 6, 7 and 8):

Buildings and structures 40,014 39,846 392,294

machinery, equipment and vehicles 22,335 21,900 218,971

62,350 61,746 611,275

Accumulated depreciation (42,511) (40,635) (416,775)

19,838 21,111 194,490

land 6,646 6,646 65,157

construction in progress 2,031 1,380 19,912

total property, plant and equipment 28,516 29,138 279,569

inVestments And otheR Assets:

investment securities (Notes 4 and 9) 10,994 10,272 107,784

intangible assets 598 732 5,863

deferred tax assets (Note 13) 5,588 4,448 54,784

other assets 2,265 2,335 22,206

total investments and other assets 19,447 17,789 190,657

totAl Assets ¥106,465 ¥108,911 $1,043,775

see accompanying notes to consolidated financial statements.




LIABILITIES AND NET ASSETS 2014 2013 2014

cuRRent liABilities:

short-term bank loans (Notes 6 and 9) ¥ 4,195 ¥ 8,390 $ 41,127

payables:

notes and accounts payable–trade (Note 9) 13,713 16,367 134,441

notes payable–facilities 154 202 1,510

Accounts payable–other 3,590 4,642 35,196

17,458 21,212 171,157

Accrued expenses 370 716 3,627

provision for bonuses 1,355 1,213 13,284

provision for sales rebates 506 529 4,961

income taxes payable (Note 13) 3,628 2,616 35,569

other 540 554 5,294

total current liabilities 28,056 35,232 275,059

non-cuRRent liABilities:

net defined benefit liability (Note 10) 9,493 — 93,069

provision for retirement benefits (Note 10) — 6,112 —

provision for directors’ retirement benefits 3 5 29

deferred tax liabilities (Note 13) 135 142 1,324

other 681 840 6,676

total non-current liabilities 10,312 7,100 101,098

net Assets:

shareholders’ equity (Notes 2 (l) and 11):

common stock

Authorized: 360,000,000 shares

issued: 101,879,461 shares as of march 31, 2014 and 101,879,461 shares as of march 31, 2013 23,853 23,853 233,853

capital surplus 11,587 11,587 113,598

Retained earnings 49,789 43,997 488,127

treasury stock, at cost: 17,380,750 shares in 2014 and 15,537,710 shares in 2013 (17,656) (14,796) (173,098)

total shareholders’ equity 67,574 64,642 662,490

Accumulated other comprehensive income:

net unrealized holding gain on securities (Note 2 (c)) 2,398 1,936 23,510

Remeasurements of defined benefit plans (1,876) — (18,392)

total accumulated other comprehensive income 521 1,936 5,108

total net assets 68,096 66,578 667,608

totAl liABilities And net Assets ¥106,465 ¥108,911 $1,043,775



Consolidated Statements of IncomeKaken pharmaceutical co., ltd. and consolidated subsidiaries

for the years ended march 31, 2014 and 2013



2014 2013 2014

net sAles ¥88,946 ¥87,054 $872,020

cost of sAles 45,166 44,968 442,804

Gross profit 43,780 42,085 429,216

sellinG, GeneRAl And AdministRAtiVe eXpenses (Note 12) 27,907 27,474 273,598

opeRAtinG income 15,872 14,611 155,608

otheR income (eXpenses):

interest and dividend income 200 152 1,961

interest expenses (44) (68) (431)

Amortization of net retirement benefit obligation at transition (524) (524) (5,137)

loss on retirement of noncurrent assets (24) (102) (235)

loss on revaluation of golf club membership (0) (4) (0)

Gain on sales of investment securities — 31 —

other, net 17 82 167

(376) (433) (3,686)

income BefoRe income tAXes And minoRity inteRests 15,496 14,178 151,922

income tAXes (Note 13):

current 6,134 5,517 60,137

deferred (373) (331) (3,657)

5,761 5,186 56,480

income BefoRe minoRity inteRests 9,735 8,991 95,441

net income ¥ 9,735 ¥ 8,991 $ 95,441

yen u.s. dollARs (note 1)

peR shARe dAtA: 2014 2013 2014

net income (Note 15):

Basic ¥114.14 ¥103.30 $1.119

diluted — — —

cash dividends applicable to the year (Note 11) ¥ 48.00 ¥ 44.00 $0.471



Consolidated Statements of Comprehensive IncomeKaken pharmaceutical co., ltd. and consolidated subsidiaries




2014 2013 2014

income BefoRe minoRity inteRests ¥ 9,735 ¥ 8,991 $95,441

otheR compRehensiVe income (Note 16):

net unrealized holding gain on securities 462 1,385 4,529

total other comprehensive income 462 1,385 4,529

compRehensiVe income 10,197 10,377 99,971

total comprehensive income attributable to:

owners of the parent ¥10,197 ¥10,377 $99,971



millions of yen

shAReholdeRs’ eQuity AccumulAted otheR compRehensiVe income

totAl net Assetscommon stock capital surplus

Retained earnings treasury stock total

net unrealized holding gain on

securities

Remeasurements of defined

benefit plans total

BAlAnce—April 1, 2012 ¥23,853 ¥11,587 ¥38,672 ¥(12,592) ¥61,520 ¥ 550 ¥ — ¥ 550 ¥62,071

changes during the year:

cash dividends (3,667) (3,667) (3,667)

net income 8,991 8,991 8,991

purchase of treasury stock (2,204) (2,204) (2,204)

sale of treasury stock 0 1 1 1

other, net 1,385 — 1,385 1,385

total changes during the year — 0 5,324 (2,203) 3,121 1,385 — 1,385 4,507

BAlAnce—march 31, 2013 ¥23,853 ¥11,587 ¥43,997 ¥(14,796) ¥64,642 ¥1,936 ¥ — ¥ 1,936 ¥66,578


cash dividends (3,942) (3,942) (3,942)

net income 9,735 9,735 9,735


sale of treasury stock — —

other, net 462 (1,876) (1,414) (1,414)

total changes during the year — — 5,792 (2,860) 2,932 462 (1,876) (1,414) 1,518

BAlAnce—march 31, 2014 ¥23,853 ¥11,587 ¥49,789 ¥(17,656) ¥67,574 ¥2,398 ¥(1,876) ¥ 521 ¥68,096

thousAnds of u.s. dollARs (note 1)

shAReholdeRs’ eQuity AccumulAted otheR compRehensiVe income

totAl net Assetscommon stock capital surplus

Retained earnings treasury stock total

net unrealized holding gain on

securities

Remeasurements of defined

benefit plans total

BAlAnce—march 31, 2013 $233,853 $113,598 $431,343 $(145,059) $633,745 $18,980 $ — $ 18,980 $652,725


cash dividends (38,647) (38,647) (38,647)

net income 95,441 95,441 95,441


sale of treasury stock — —

other, net 4,529 (18,392) (13,863) (13,863)

total changes during the year — — 56,784 (28,039) 28,745 4,529 (18,392) (13,863) 14,882

BAlAnce—march 31, 2014 $233,853 $113,598 $488,127 $(173,098) $662,490 $23,510 $(18,392) $ 5,108 $667,608


Consolidated Statements of Changes in Net AssetsKaken pharmaceutical co., ltd. and consolidated subsidiaries



Consolidated Statements of Cash FlowsKaken pharmaceutical co., ltd. and consolidated subsidiaries




2014 2013 2014

cAsh floWs fRom opeRAtinG ActiVities:

income before income taxes ¥ 15,496 ¥14,178 $ 151,922

Adjustments for:

depreciation 2,538 2,607 24,882

increase (decrease) in provision for retirement benefits — 512 —

increase (decrease) in net defined benefit liability 464 — 4,549

interest and dividend income (200) (152) (1,961)

interest expenses 44 68 431

loss (gain) on sales of investment securities — (31) —

loss on retirement of noncurrent assets 24 102 235

decrease (increase) in notes and accounts receivable–trade 5,811 858 56,971

decrease (increase) in inventories (1,690) (605) (16,569)

increase (decrease) in notes and accounts payable–trade (2,653) 35 (26,010)

other, net (1,198) 389 (11,745)

subtotal 18,637 17,961 182,716

interest and dividends received 200 152 1,961

interest paid (45) (65) (441)

income taxes paid, net (5,128) (6,318) (50,275)

net cash provided by operating activities 13,663 11,729 133,951

cAsh floWs fRom inVestinG ActiVities:

purchase of property, plant and equipment (2,071) (3,845) (20,304)

purchase of intangible assets (55) (69) (539)

purchase of investment securities (3) (1,813) (29)

proceeds from sales of investment securities — 148 —

other, net (4) (1,213) (39)

net cash used in investing activities (2,135) (6,792) (20,931)

cAsh floWs fRom finAncinG ActiVities:

decrease in short-term loans payable (4,195) — (41,127)

net change in treasury stock (2,860) (2,202) (28,039)

cash dividends paid (3,936) (3,664) (38,588)

net cash provided by (used in) financing activities (10,992) (5,867) (107,765)

net incReAse (decReAse) in cAsh And cAsh eQuiVAlents 536 (930) 5,255

cAsh And cAsh eQuiVAlents At BeGinninG of yeAR 16,920 17,851 165,882

cAsh And cAsh eQuiVAlents At end of yeAR (Note 3) ¥ 17,457 ¥16,920 $ 171,147



Notes to the Consolidated Financial Statements

1. Basis of Presenting Consolidated Financial Statements:the accompanying consolidated financial statements of KAKen phARmAceuticAl co., ltd.

(the “company”) and its consolidated subsidiaries (collectively the “Group”) are prepared on the basis

of the accounting principles generally accepted in Japan, which are different in certain respects as

to the application and disclosure requirements of international financial Reporting standards, and

are compiled from the consolidated financial statements prepared by the company as required by

the financial instruments and exchange Act of Japan.

in preparing these consolidated financial statements, certain reclassifications and rearrangements

have been made to the consolidated financial statements issued domestically in order to present

them in a form which is more familiar to readers outside Japan. in addition, certain reclassifications

have been made in the 2013 financial statements to conform to the classifications used in 2014.

As permitted by the financial instruments and exchange Act of Japan, amounts of less than one

million yen have been omitted. As a result, the totals shown in the accompanying consolidated

financial statements (both in yen and u.s. dollars) do not necessarily agree with the sum of the

individual amounts.

the u.s. dollar amounts in the accompanying consolidated financial statements have been trans-

lated from yen amounts solely for convenience and, as a matter of arithmetic computation only, at

¥102 = u.s.$1.00, the approximate rate of exchange prevailing on march 31, 2014. this translation

should not be construed as a representation that yen amounts have been, could have been, or could

in the future be, converted into u.s. dollars at the above or any other rate.

2. Summary of Significant Accounting Policies:(a) principles of consolidation

the consolidated financial statements include the accounts of the company and all of its subsidiaries.

for the years ended march 31, 2014 and 2013, the company had two consolidated subsidiaries as follows:

KAKen ReAlty & seRVice co., ltd.

KAKen phARmA co., ltd.

for the years ended march 31, 2014 and 2013, there was no affiliate accounted for using the equity

method.

All significant intercompany transactions, account balances and unrealized profits or losses among

the Group have been eliminated in consolidation.

(b) cash and cash equivalents

cash and cash equivalents in the consolidated statements of cash flows are composed of cash on

hand, bank deposits which are able to be withdrawn within three months, and short-term investments

with original maturity of three months or less and are considered to have minimal risk from market

fluctuations.

(c) marketable and investment securities

securities are classified into one of the following three categories: (1) trading, (2) held-to-maturity

debt securities, and (3) Available-for-sale securities. trading securities are recorded at market value

with unrealized gains or losses recognized in the current year’s earnings. held-to-maturity debt secu-

rities are carried at amortized cost. Available-for-sale securities are expected to be sold in future and

those whose fair values are readily determinable are carried at fair value and the related unrealized

gains or losses, net of taxes, are included as a component of “Accumulated other comprehensive in-

come” under net assets. Available-for-sale securities without market quotations are stated at cost

determined by the moving average method.


(d) inventories

inventories are stated at the lower of cost determined by the gross average method, or net selling

value, which is defined as the selling price less additional estimated manufacturing costs and esti-

mated direct selling expenses.

(e) property, plant and equipment

depreciation is computed using the declining-balance method at rates based on the estimated useful

lives of assets, except for buildings, structures, machinery and equipment for the Komagome office,

which are computed using the straight-line method. furthermore, depreciation of buildings, except

for ancillary facilities to buildings, acquired on or after April 1, 1998, is computed using the straight-

line method.

the range of useful lives is from 3 years to 60 years for buildings and structures, and from 2 years to

8 years for machinery, equipment and vehicles.

(f) intangible Assets

software for own use is amortized over the estimated useful life (five years) using the straight-line

method.

(g) Retirement and pension plan

the company attributes projected benefits on a straight-line basis.

the transition amount is amortized on a straight-line basis over 15 years. unrecognized actuarial

difference is amortized on a straight-line basis over 10 years from the year in which they arise. unrec-

ognized prior service cost is amortized on a straight-line basis over 10 years from the year in which

they arise.

(Change in accounting policy)

effective from the year ended march 31, 2014, the company has applied the Accounting standard

for Retirement Benefits (Accounting standards Board of Japan (“AsBJ”) statement no. 26, issued on

may 17, 2012, hereinafter the “Accounting standard”) and the Guidance on Accounting standard for

Retirement Benefits (AsBJ Guidance no. 25, issued on may 17, 2012, hereinafter the “Guidance”),

except for the provisions set forth in paragraph 35 of the Accounting standard and paragraph 67 of

the Guidance. under the new policy, the excess amount of retirement benefit obligation over plan

assets is recognized as the net defined benefit liability. the unrecognized actuarial difference, unreal-

ized prior service cost and unrecognized transition amount are also recognized as the net defined

benefit liability.

the company transitionally applied this Accounting standard as determined in its paragraph 37 and

included the effect of changes in the accounting standard in the remeasurements of defined benefit

plans under the accumulated other comprehensive income as of march 31, 2014.

As a result, the net defined benefit liability has amounted to ¥9,493 million ($93,069 thousand).

Besides, the accumulated other comprehensive income has decreased by ¥1,876 million ($18,392 thou-

sand).

in addition, net assets per share has decreased by ¥22.21 ($0.22).

(h) income taxes

income taxes–deferred are determined using the asset and liability approach, where deferred tax

assets and liabilities are recognized for temporary differences between the tax basis of assets and

liabilities and their reported amount in the consolidated financial statements.


(i) consumption taxes

consumption taxes withheld and consumption taxes paid are excluded from revenues and expenses

in the accompanying consolidated statements of income. the net balance of consumption taxes with-

held and consumption taxes paid is included in current liabilities of the consolidated balance sheet

as of the end of the fiscal year.

(j) derivative financial instruments

derivative instruments, which include forward foreign exchange contracts, are used as a part of the

company’s risk management of foreign currency risk exposure of its financial assets and liabilities.

Forward foreign exchange contracts:

the company enters into forward foreign exchange contracts to limit risk exposure, affected by

changes in foreign currency exchange rates, on accounts receivable and payable and cash flows gener-

ated from anticipated transactions denominated in foreign currencies. for forward foreign exchange

contracts which are designated and are effective as hedges of such foreign currency risk on existing

assets and liabilities, the company adopted the accounting method whereby foreign currency de-

nominated assets and liabilities are measured at the contract rate of the respective forward foreign

exchange contracts. With respect to such contracts for anticipated transactions, the contracts are

marked-to-market and the unrealized gains/losses are deferred in the balance sheet to be released to

income when the exchange gains/losses on the hedged items or transactions are recognized.

(k) Appropriations of Retained earnings

Appropriations of retained earnings at each year-end are reflected in the consolidated financial state-

ments for the following year upon shareholders’ approval.

(l) shareholders’ equity

Japanese companies are subject to the companies Act of Japan (the “Act”). the Act provides that an

amount equal to 10% of the amount to be disbursed as distributions of capital surplus (other than the

capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital re-

serve and the legal reserve, respectively, until the sum of the capital reserve and legal reserve equals

25% of the stated capital. such distributions can be made at any time by resolution of the shareholders’

or by the Board of directors if certain conditions are met. the above mentioned legal reserve is included

in retained earnings in the accompanying consolidated balance sheets.

(m) net income and dividends per share

net income per share of common stock is based upon the weighted average number of shares of

common stock outstanding during each financial year appropriately adjusted for subsequent free

distribution of shares (stock splits), if applicable.

cash dividends per share shown for each year in the accompanying consolidated statements of

income represent dividends approved or declared as applicable to the respective years.

(n) Accounting standards issued But not yet Adopted

the “Accounting standard for Retirement Benefits” (AsBJ statement no. 26, issued on may 17, 2012)

and the “Guidance on Accounting standard for Retirement Benefits” (AsBJ Guidance no. 25, issued on

may 17, 2012)


1) overview

this accounting standard and its implementation guidance have been revised from the viewpoint

of improvements to financial reporting and international convergence, mainly focusing on (a) the

accounting of unrecognized actuarial difference and unrecognized prior service cost, (b) the calcula-

tion of retirement benefit obligation and service cost, and (c) enhancement of disclosures.

2) effective date

the company will adopt the amendments relating to the calculation of retirement benefit obligation

and service cost effective from April 1, 2014.

3) financial impact

upon the adoption of this accounting standard and its implementation guidance, retained earnings

at April 1, 2014 will increase by ¥299 million ($2,931 thousand).

the financial impact on operating income and income before income taxes and minority interest

will be immaterial.

3. Cash and Cash Equivalents:cash and deposits and marketable securities are reconciled to cash and cash equivalents on the

consolidated statements of cash flows as follows:



for the years ended march 31 2014 2013 2014

cash and deposits ¥ 9,644 ¥ 9,710 $ 94,549

marketable securities 7,812 7,210 76,588

subtotal ¥17,457 ¥16,920 $171,147

time deposits due in more than three months — — —

marketable securities due in more than three months — — —

cash and cash equivalents ¥17,457 ¥16,920 $171,147

4. Marketable and Investment Securities:the carrying amounts and fair values of held-to-maturity debt securities are as follows:

millions of yen

carrying amount fair value unrealized gain (loss) carrying amount fair value unrealized gain (loss)

march 31 2014 2013

fair values exceeding carrying amount ¥ — ¥ — ¥— ¥ — ¥ — ¥—

fair values not exceeding carrying amount 1,999 1,999 — 2,999 2,999 —

total ¥1,999 ¥1,999 ¥— ¥2,999 ¥2,999 ¥—


carrying amount fair value unrealized gain (loss)

march 31 2014

fair values exceeding carrying amount $ — $ — $—

fair values not exceeding carrying amount 19,598 19,598 —

total $19,598 $19,598 $—


the aggregate fair values (carrying amounts) and acquisition costs of available-for-sale securities are

as follows:

millions of yen

fair value Acquisition cost unrealized gain (loss) fair value Acquisition cost unrealized gain (loss)

march 31 2014 2013

carrying amounts exceeding acquisition cost

equity securities ¥10,932 ¥ 7,205 ¥3,726 ¥10,129 ¥ 7,114 ¥3,014

others — — — — — —

subtotal 10,932 7,205 3,726 10,129 7,114 3,014

carrying amounts not exceeding acquisition cost

equity securities — — — 80 87 (6)

others 5,812 5,812 — 4,210 4,210 —

subtotal 5,812 5,812 — 4,291 4,297 (6)

total ¥16,744 ¥13,018 ¥3,726 ¥14,421 ¥11,412 ¥3,008


fair value Acquisition cost unrealized gain (loss)

march 31 2014

carrying amounts exceeding acquisition cost

equity securities $107,176 $ 70,637 $36,529

others — — —

subtotal 107,176 70,637 36,529

carrying amounts not exceeding acquisition cost

equity securities — — —

others 56,980 56,980 —

subtotal 56,980 56,980 —

total $164,157 $127,627 $36,529

there were no available-for-sale securities sold for the year ended march 31, 2014.

Available-for-sale securities sold for the year ended march 31, 2013, were as follows:

millions of yen

sales proceeds Aggregate gain Aggregate loss

for the year ended march 31 2013

equity securities ¥148 ¥31 ¥—

5. Inventories:inventories as of march 31, 2014 and 2013, are comprised of the following:



march 31 2014 2013 2014

merchandise and finished products ¥ 6,855 ¥ 6,018 $ 67,206

Work in process 1,641 1,438 16,088

Raw materials and supplies 4,724 4,075 46,314

total ¥13,222 ¥11,531 $129,627


6. Short-term Bank Loans:short-term bank loans outstanding as of march 31, 2014 and 2013, amounting to ¥4,195 million ($41,127

thousand) and ¥8,390 million, represent the notes issued by the Group to banks. customarily, these

notes are renewed at maturity subject to renegotiation of interest rates and other factors. the weight-

ed-average interest rates applicable to short-term bank loans as of march 31, 2014 and 2013, are 0.69%

and 0.72%, respectively.

As is customary in Japan, short-term and long-term bank loans are made under general agreements

which provide that security and guarantees for future and present indebtedness will be given upon

request of the bank, and that the bank shall have the right, as the obligations become due or in the

event of their default, to offset cash deposits against such obligations due to the bank. the Group has

not received any such requests to date.

At march 31, 2014 and 2013, assets pledged as collateral for certain short-term bank loans are

as follows:



march 31 2014 2013 2014

Assets pledged:

Buildings and structures ¥2,582 ¥2,730 $25,314

machinery and vehicles 2,254 2,480 22,098

tools, furniture and fixtures 420 497 4,118

land 103 103 1,010

total ¥5,360 ¥5,812 $52,549

liabilities secured:

short-term bank loans ¥1,400 ¥1,400 $13,725

total ¥1,400 ¥1,400 $13,725

7. Accounting for Leases:Operating leases

future minimum lease receivables under non-cancellable operating leases subsequent to march 31, 2014

and 2013, are as follows:



march 31 2014 2013 2014

due within 1 year ¥ 239 ¥ 239 $ 2,343

due after 1 year 2,328 2,567 22,824

total ¥2,567 ¥2,806 $25,167


8. Investment Properties:the company and certain consolidated subsidiaries own rental office buildings (including land) in

tokyo and other areas. Rental income from these properties for the years ended march 31, 2014 and

2013, are ¥1,445 million ($14,167 thousand) and ¥1,370 million (major revenue from rental properties

and rent expense are reported as net sales and cost of sales, respectively).

carrying amount, change during the years ended march 31, 2014 and 2013, and fair values of these

properties are stated as follows:

millions of yen

carrying amount

Balance at April 1, 2013 change during the year ended march 31, 2014 Balance at march 31, 2014 fair value at march 31, 2014

¥15,734 ¥(575) ¥15,158 ¥38,991

millions of yen

carrying amount


¥15,307 ¥427 ¥15,734 ¥40,550


carrying amount


$154,255 $(5,637) $148,608 $382,265

notes: 1. the carrying amount represents the acquisition costs less accumulated depreciation.

2. fair value at march 31, 2014 and 2013 is calculated, with adjustments using indexes, by the company based primarily on the “Real estate appraisal

standards of Japan.”

9. Financial Instruments:1. Outline of financial instruments

(1) policy for financial instruments

the Group is managing its cash surplus in the form of low-risk financial instruments with high liquid-

ity, while raising short-term working capital through loans from financial institutions including banks.

derivatives are used, not for speculative purposes, but to manage exposure to financial risks as

described later.

(2) nature and extent of risks arising from financial instruments

Receivables such as notes and accounts receivable–trade are exposed to customers’ credit risk. trade

receivables denominated in foreign currencies are exposed to foreign exchange fluctuation risk. mar-

ketable and investment securities are mainly held-to-maturity securities and shares held to maintain

business collaborations with clients and trade partners, which are exposed to the risk of market price

fluctuations.

payment terms of payables, such as notes and accounts payable–trade, are mostly less than one

year. payables in foreign currencies incurred from the import transactions of raw materials are ex-

posed to foreign exchange fluctuation risk. loans are used for short-term working capital.

derivative transactions mainly include forward foreign exchange contracts for the purpose of

hedging foreign exchange fluctuation risk exposed to trade receivables and payables denominated

in foreign currencies. hedging instruments and hedged items, hedging policy, assessment method for

hedge effectiveness, and other matters related to hedge accounting are as follows:


a. hedging instruments and hedged items

hedging instrument: forward foreign exchange contract

hedged items: foreign currency denominated receivables and payables, and forecast

foreign currency denominated transactions

b. hedging policy

hedging instruments are used within the limits of anticipated foreign currency denominated transac-

tions, and the company makes it a policy not to use derivatives for speculative purposes.

c. Assessment method for hedge effectiveness

since material terms related to hedged items and hedging instruments are substantially identical,

and such hedging transactions are deemed to be highly effective so that the market fluctuations

may be completely offset continuously after the inception of the related hedge, assessment of hedg-

ing effectiveness is omitted.

Assessment of effectiveness is omitted also for the forward foreign exchange contracts, under

which the hedged items are translated using the forward contract rates.

(3) Risk management for financial instruments

a. credit risk management (customers’ default risk)

for the purpose of managing trade receivables within the Group, each concerned department, accord-

ing to the credit management rules, is managing payment terms and balances of each major customer

by regularly monitoring their status, in an effort to achieve early identification and mitigation of

default risk of customers arising from their deteriorating financial condition and other factors.

held-to-maturity securities held by the company are, under the short-term investment rules,

restricted to those with superior ratings only, involving minimal credit risk.

the company enters into derivative transactions with high credit rating financial institutions to

mitigate the counterparty risk.

b. market risk management (foreign exchange and interest rate fluctuation risks)

the company uses forward foreign exchange contracts as appropriate to hedge foreign exchange

fluctuation risk associated with trade receivables and payables denominated in foreign currencies.

With respect to marketable and investment securities, the company is periodically monitoring fair

values and financial positions of the related issuers (business connections).

derivative transactions are conducted under the authority of the general manager at each concerned

department, under the forward foreign exchange contracts management rules, and actual perfor-

mance of derivative transactions is reported to the concerned departments including the Accounting

department, as each transaction takes place. then at the end of each month, the outstanding balance

of forward exchange contracts is reported to directors in charge, as well as to other concerned depart-

ments. the consolidated subsidiaries are not engaged in derivative transactions.

c. liquidity risk management on fund-raising

the company manages its liquidity risk by the Accounting department preparing and updating the

cash flow management plan as appropriate based on the report from each concerned department.

(4) supplementary explanation concerning fair values of financial instruments

fair values of financial instruments comprise values determined based on market prices and values

determined reasonably when there is no market price. since variable factors are incorporated in com-

puting the relevant fair values, such fair values may vary depending on different assumptions.


(5) concentration of credit risks

As of march 31, 2014 and 2013, 63% and 66% of all trade receivables are with specific major accounts,

respectively.

2. fair values of financial instruments

carrying amount, fair value, and difference of the financial instruments as of march 31, 2014 and 2013,

are as follows:

financial instruments whose fair values are not readily determinable are excluded from the

following table:

millions of yen

carrying amount fair value difference

march 31 2014

(1) cash and deposits ¥ 9,644 ¥ 9,644 —

(2) notes and accounts receivable–trade 25,363

Allowance for doubtful accounts (*1) (2)

25,360 25,360 —

(3) marketable and investment securities

a. held-to-maturity securities 1,999 1,999 —

b. Available-for-sale securities 16,744 16,744 —

total assets ¥53,750 ¥53,750 —

(1) notes and accounts payable–trade ¥13,713 ¥13,713 —

(2) short-term bank loans 4,195 4,195 —

total liabilities ¥17,908 ¥17,908 —

millions of yen


march 31 2013

(1) cash and deposits ¥ 9,710 ¥ 9,710 —



31,171 31,171 —




total assets ¥58,303 ¥58,303 —

(1) notes and accounts payable–trade ¥16,367 ¥16,367 —


total liabilities ¥24,757 ¥24,757 —




march 31 2014

(1) cash and deposits $ 94,549 $ 94,549 —



248,627 248,627 —




total assets $526,961 $526,961 —

(1) notes and accounts payable–trade $134,441 $134,441 —


total liabilities $175,569 $175,569 —

(*1) Allowance for doubtful accounts in respect of notes and accounts receivable–trade.

notes:

1. calculation method of fair values of financial instruments and securities

Assets:

(1) cash and deposits and (2) notes and accounts receivable–trade

these assets are recorded using carrying amounts because fair values approximate carrying amounts because of

their short-term maturities.


fair values of equity securities are based on the prices quoted on stock exchanges while those of debt securities are

based on the prices quoted on stock exchanges, or those quoted by correspondent financial institutions. for the

notes on marketable securities by purpose of holding, please see note 4. “marketable and investment securities.”

liabilities:

(1) notes and accounts payable–trade and (2) short-term bank loans

these payables are recorded using carrying amounts because fair values approximate carrying amounts because of

their short-term maturities.

2. financial instruments whose fair values are not readily determinable



carrying amount

march 31 2014 2013 2014

unlisted equity securities ¥62 ¥62 $608

these items are not included in “(3) marketable and investment securities” because there is no market price and it

is very difficult to identify fair values.

3. Redemption schedule of monetary assets and securities with contractual maturities subsequent to march 31, 2014

and 2013, are as follows:millions of yen

Within one year

march 31 2014

cash and deposits ¥ 9,644

notes and accounts receivable–trade 25,363

marketable and investment securities:

held-to-maturity securities 1,999

Available-for-sale securities with contractual maturities 900

total ¥37,907


millions of yen

Within one year

march 31 2013

cash and deposits ¥ 9,710




Available-for-sale securities with contractual maturities 900

total ¥44,784


Within one year

march 31 2014

cash and deposits $ 94,549




Available-for-sale securities with contractual maturities 8,824

total $371,637

4. Redemption schedules for long-term debt and other interest-bearing obligations subsequent to march 31, 2014

and 2013 are omitted since the company only had short-term bank loans maturing within one year as of march 31,

2014 and 2013.

10. Retirement Benefits:(For the year ended March 31, 2014)

the company has defined benefit plans, i.e., a lump-sum retirement plan and employees’ pension fund

plan. Retirement benefit trust is established for the lump-sum retirement plan. the company may pay

a premium in addition to the retirement benefits. the simplified method is used for the calculation of

retirement benefit obligation at consolidated subsidiaries.

defined benefit plans

(1) changes in the retirement benefit obligation for the year ended march 31, 2014 are as follows

(excluding plans under the simplified method):



for the year ended march 31 2014 2014

Retirement benefit obligation–Beginning balance ¥21,799 $213,716

service cost 674 6,608

interest cost 283 2,775

Actuarial differences 168 1,647

Retirement benefit paid (1,374) (13,471)

Retirement benefit obligation–ending balance ¥21,551 $211,284


(2) changes in the plan assets for the year ended march 31, 2014 are as follows (excluding plans under

the simplified method):




plan assets–Beginning balance ¥11,133 $109,147

expected return on plan assets 264 2,588

Actuarial differences 781 7,657

employer’s contributions 648 6,353

Retirement benefit paid (763) (7,480)

plan assets–ending balance ¥12,064 $118,275

(3) changes in the net defined benefit liability under the simplified method for the year ended march

31, 2014 are as follows:




net defined benefit liability–Beginning balance ¥5 $49

Retirement benefit cost 0 0

net defined benefit liability–ending balance ¥5 $49

(4) net balance of the retirement benefit obligation and plan assets, and net balance shown on the

consolidated balance sheet



march 31 2014 2014

Retirement benefit obligation under funded plan ¥ 21,551 $ 211,284

plan assets (12,064) (118,275)

9,487 93,010

Retirement benefit obligation under non-funded plan 5 49

net balance shown on the consolidated balance sheet ¥ 9,493 $ 93,069

net defined benefit liability ¥ 9,493 $ 93,069

net balance shown on the consolidated balance sheet ¥ 9,493 $ 93,069

notes: 1. Retirement benefit obligation and plan assets under the company’s funded plan include those for the lump-sum

retirement plan.

2. A plan under simplified method is included.

(5) the components of retirement benefit cost are as follows:




service cost ¥ 674 $ 6,608

interest cost 283 2,775

expected return on plan assets (264) (2,588)

Amortization of actuarial differences 537 5,265

Amortization of prior service cost (33) (324)

Amortization of transition amount 524 5,137

Retirement benefit cost under simplified method 0 0

Retirement benefit cost for defined benefit plans ¥1,723 $16,892


(6) Remeasurements of defined benefit plans

the following summarizes the items accounted for as remeasurements of defined benefit plans

(before tax effect).




unrecognized prior service cost ¥ (238) $ (2,333)

unrecognized actuarial differences 2,629 25,775

unrecognized transition amount 524 5,137

total ¥2,916 $28,588

(7) plan assets

(a) plan assets consist of the following:march 31 2014

debt securities 42%

equity securities 37%

General account 17%

other 4%

total 100%

(note) the plan assets include retirement benefit trust which accounts for 5% of the total plan assets.

(b) long-term expected rate of return on plan assets is determined based on assumptions about:

(i) allocation of plan assets and (ii) long-term expected rate of returns on such assets.

(8) Assumptions used for calculation of actuarial differences for the year ended march 31, 2014 are as

follows (weighted average):

discount rate 1.3%

long-term expected rate of return 2.5%

(for the year ended march 31, 2013)

the following table sets forth the funded and accrued status of the plan, and the amounts recognized

in the company’s consolidated balance sheet as of march 31, 2013.millions of yen

march 31 2013

Retirement benefit obligation ¥(21,805)

plan assets 11,133

funded status (10,671)

unrecognized transition amount 1,049

unrecognized actuarial differences 3,780

unrecognized prior service cost (271)

(6,112)

Amounts recognized in the balance sheet consists of

prepaid pension cost (other assets) —

provision for retirement benefits ¥ (6,112)

notes: 1. Retirement benefit trust assets of ¥549 million are included in plan assets as of march 31, 2013.

2. the consolidated subsidiaries use a simplified method of accounting to calculate retirement

benefit obligations.


the components of net pension and severance costs for the year ended march 31, 2013 are as follows:millions of yen


service cost ¥ 603

interest cost 466

expected return on plan assets (97)

Amortization of transition amount 524

Amortization of actuarial differences 628

Amortization of prior service cost (55)

net pension expense ¥2,070

Assumptions used in calculation of the above information for the year ended march 31, 2013 are as

follows:

discount rate: 1.3%

expected rate of return on plan assets: 1.0%

method of attributing the projected benefits to periods of service: straight-line method

11. Shareholders’ Equity:a) Type and number of shares outstanding and treasury stock

type of shares outstanding type of treasury stock

for the year ended march 31 common stock common stock

number of shares as of April 1, 2013 101,879,461 15,537,710

increase in the number of shares during the accounting period ended march 31, 2014 — 1,843,040

number of shares as of march 31, 2014 101,879,461 17,380,750

note: increase in treasury stock (1,843,040 shares) is due to purchase of shares in the market (1,800,000 shares) based on the resolution of the Board of

directors’ meeting and purchase of shares less than one unit (43,040 shares).

b) Matters related to dividends

i) dividend payment

Approvals by the ordinary general meeting of shareholders held on June 27, 2013, were as follows:

dividends on common stock

total amount of dividends ¥1,899 million ($18,618 thousand)

dividends per share ¥22.00 ($0.22)

Record date march 31, 2013

effective date June 28, 2013

Approvals by the Board of directors’ meeting held on november 6, 2013, were as follows:




Record date september 30, 2013

effective date december 3, 2013


ii) dividends whose record date is attributed to the accounting period ended march 31, 2014, but

become effective after the said accounting period

the company obtained the following approval at the general meeting of shareholders held on

June 27, 2014:




Record date march 31, 2014

effective date June 30, 2014

12. Research and Development Costs:Research and development costs included in selling, general and administrative expenses for the

years ended march 31, 2014 and 2013, amounted to ¥7,045 million ($69,069 thousand) and

¥6,302 million, respectively.

13. Income Taxes:the Group is subject to several taxes based on income, which in the aggregate resulted in statutory

tax rates of approximately 38.01% for the years ended march 31, 2014 and 2013. A reconciliation of the

differences between the statutory tax rate and the effective tax rate for the years ended march 31,

2014 and 2013, are as follows:

march 31 2014 2013

statutory tax rate 38.01% 38.01%

increase (decrease) in taxes resulting from:

expenses not deductible for income tax purpose (ex. entertainment expenses) 1.30 1.52

income not included for income tax purpose (ex. dividend income) (0.23) (0.18)

inhabitant per capita taxes 0.57 0.61

tax credit for research expenses (3.02) (3.10)

other 0.55 (0.28)

effective tax rate 37.18% 36.58%


significant components of deferred tax assets as of march 31, 2014 and 2013, are as follows:



march 31 2014 2013 2014

deferred tax assets:

provision for bonuses ¥ 455 ¥ 429 $ 4,461

provision for sales rebates 180 201 1,765

loss of supplies 124 123 1,216

Revaluation of financial instruments 32 39 314

Amortization of R&d 652 371 6,392

Amortization of long-term prepaid expenses 57 92 559

pension and severance costs — 2,369 —

net defined benefit liability 3,552 — 34,824

unrealized gain of property, plant and equipment 2,568 2,568 25,176

other 534 567 5,235

total 8,158 6,762 79,980

Valuation allowance (59) (66) (578)

deferred tax assets 8,098 6,696 79,392

deferred tax liabilities:

Reserve for advanced depreciation of property, plant and equipment (189) (199) (1,853)

net unrealized holding gain on securities (1,328) (1,072) (13,020)

other (0) (0) (0)

deferred tax liabilities (1,518) (1,271) (14,882)

deferred tax assets, net ¥ 6,580 ¥ 5,424 $ 64,510

in line with the promulgation on march 31, 2014 of the “Act for partial Revision of the income tax

Act, etc.” (Act no. 10, 2014), the additional tax as special corporate tax for Reconstruction will not be

imposed effective from the fiscal period beginning on or after April 1, 2014. in connection therewith,

for temporary differences reversing on or after April 1, 2014, the statutory effective tax rate used to

calculate deferred tax assets or liabilities will be changed from 38.01% to 35.64%.

As a result of this change, net deferred tax assets decreased by ¥88 million ($863 thousand) and

income taxes–deferred increased by ¥88 million ($863 thousand) as of and for the year ended march

31, 2014.

14. Related Party Transactions:there is nothing to be noted according to the disclosure requirements in Japan for the years ended

march 31, 2014 and 2013.

15. Per Share Information:per share information for the years ended march 31, 2014 and 2013, are as follows:

yen u.s. dollARs (note 1)


net assets per share ¥805.89 ¥771.10 $7.901

net income per share 114.14 103.30 1.119

note: diluted net income per share is not presented due to the absence of dilutive shares.


calculation for net income per share for the years ended march 31, 2014 and 2013, are as follows:




net income ¥ 9,735 ¥ 8,991 $95,441

net income attributable to common stock 9,735 8,991 95,441

net income not attributable to common stock — — —

(share data)

Average number of shares (thousand) 85,295 87,042 —

16. Comprehensive Income:Recycling and income tax effects for each component of other comprehensive income for the years

ended march 31, 2014 and 2013, are as follows:




net unrealized holding gain on securities

Amount increased for the year ¥ 718 ¥2,185 $ 7,039

Recycling — (31) —

Before income tax effect 718 2,153 7,039

income tax effect (256) (767) (2,510)

net unrealized holding gain on securities ¥ 462 ¥1,385 $ 4,529

total other comprehensive income ¥ 462 ¥1,385 $ 4,529

17. Segment Information:(a) overview of reportable segments

the Group’s reportable segments are those for which separate financial information is available and

regular evaluation by the Board of directors is being performed in order to decide how resources are

allocated among the Group.

the Group produces and sells medical products and agrochemicals, rents real estates, and maintains

buildings, operating business by category of industry. each business operates on its own initiative, and

creates comprehensive business strategies to conduct business activities. the Group consists of seg-

ments by category of industry based on the operation of business; therefore, consists of two report-

able segments: “pharmaceutical” and “Real estate.”

“pharmaceutical” mainly produces and sells medical products, medical devices, and agrochemicals.

“Real estate” mainly rents Bunkyo Green court.

(b) method of calculating net sales, income, assets, and other items by reportable segment

Accounting policies of the reportable segments are consistent to those described in note 2. “sum-

mary of significant Accounting policies.” income by the reportable segment is based on operating

income. intersegment transactions are based on prevailing market prices.

corporate assets are not allocated to each reportable segment. however, related expenses are

allocated to each reportable segment using reasonable criteria.


(c) information about reportable segments

millions of yen

Reportable segment

pharmaceutical Real estate total Adjustments consolidated


net sales:

outside sales ¥86,483 ¥ 2,463 ¥88,946 ¥ — ¥ 88,946

intersegment sales or transfers — 317 317 (317) —

total ¥86,483 ¥ 2,780 ¥89,263 ¥ (317) ¥ 88,946

segment income ¥14,427 ¥ 1,445 ¥15,872 ¥ — ¥ 15,872

segment assets ¥64,662 ¥16,615 ¥81,277 ¥25,188 ¥106,465

other items:

depreciation and amortization ¥ 1,902 ¥ 707 ¥ 2,609 ¥ — ¥ 2,609

increase in property, plant and equipment and intangible assets 1,781 60 1,842 — 1,842

millions of yen

Reportable segment



net sales:

outside sales ¥84,618 ¥ 2,435 ¥87,054 ¥ — ¥ 87,054

intersegment sales or transfers — 313 313 (313) —

total ¥84,618 ¥ 2,749 ¥87,367 ¥ (313) ¥ 87,054

segment income ¥13,240 ¥ 1,370 ¥14,611 ¥ — ¥ 14,611

segment assets ¥68,094 ¥17,203 ¥85,297 ¥23,613 ¥108,911

other items:

depreciation and amortization ¥ 2,054 ¥ 625 ¥ 2,680 ¥ — ¥ 2,680

increase in property, plant and equipment and intangible assets 3,440 1,075 4,516 — 4,516


Reportable segment



net sales:

outside sales $847,873 $ 24,147 $872,020 $ — $ 872,020

intersegment sales or transfers — 3,108 3,108 (3,108) —

total $847,873 $ 27,255 $875,127 $ (3,108) $ 872,020

segment income $141,441 $ 14,167 $155,608 $ — $ 155,608

segment assets $633,941 $162,892 $796,833 $246,941 $1,043,775

other items:

depreciation and amortization $ 18,647 $ 6,931 $ 25,578 $ — $ 25,578

increase in property, plant and equipment and intangible assets 17,461 588 18,059 — 18,059

(d) information about products and services

information about products and services has not been disclosed since the classification by products

and services is the same as the reportable segments.


(e) information by geographical area

(1) sales

information about sales has not been disclosed since sales in Japan constituted more than 90%

of sales on the consolidated statements of income.

(2) property, plant and equipment

information about property, plant and equipment has not been disclosed since there is only

property, plant and equipment located in Japan.

(f) information about major customers



sales name of the related segment


suZuKen co., ltd. ¥13,879 ¥13,763 $136,069 pharmaceutical

Alfresa corporation 13,806 14,338 135,353 pharmaceutical

mediceo coRpoRAtion 13,140 12,936 128,824 pharmaceutical

toho pharmaceutical co., ltd. 8,898 8,912 87,235 pharmaceutical

18. Subsequent Events:(a) Acquisition of treasury stock

following acquisition of treasury stock under Article 156 of the companies Act (the “Act”), as applied

pursuant to Article 165 (3) of the Act, has been resolved by the Board of directors’ meeting held on

may 12, 2014.

(1) Reason for acquisition:

to execute flexible capital policy corresponding to changes in management environment.

(2) class of stocks to be acquired:

common stock

(3) number of stock to be acquired:

up to 1,800,000 shares

(4) total amount of stocks to be acquired:

up to ¥3,500 million ($34,314 thousand)


(5) schedule of acquisition:

from may 13, 2014, to december 29, 2014

(6) method of acquisition

purchase on the tokyo stock exchange

the total number and total amount of stock acquired based on the above resolution on or before may

31, 2014, were 440,000 shares and ¥853 million ($8,363 thousand), respectively.

(b) cancellation of treasury stock

following cancellation of treasury stock under Article 178 of the Act has been resolved by the Board of

directors’ meeting held on may 12, 2014 and executed on may 30, 2014.

(1) Reason for cancellation:

to execute flexible capital policy corresponding to changes in management environment.

(2) class of stocks to be cancelled:

common stock

(3) number of stock to be cancelled:

5,000,000 shares

(4) total number of stocks issued and outstanding after the cancellation:

96,879,461 shares

(5) date of cancellation

may 30, 2014


to the Board of directors

KAKen phARmAceuticAl co., ltd.

We have audited the accompanying consolidated financial statements of KAKen phARmAceuticAl co., ltd.

(the “company”) and subsidiaries, which comprise the consolidated balance sheet as of march 31, 2014, and the related

consolidated statements of income, comprehensive income, changes in net assets, and cash flows for the year then ended,

and a summary of significant accounting policies and other explanatory information, all expressed in Japanese yen.

Management’s Responsibility for the Consolidated Financial Statements

management is responsible for the preparation and fair presentation of these consolidated financial statements in

accordance with accounting principles generally accepted in Japan, and for designing and operating such internal control

as management determines is necessary to enable the preparation and fair presentation of the consolidated financial

statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted

our audit in accordance with auditing standards generally accepted in Japan. those standards require that we plan and

perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from

material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated

financial statements. the procedures selected depend on the auditor’s judgment, including the assessment of the risks of

material misstatement of the consolidated financial statements, whether due to fraud or error. the purpose of an audit of

the consolidated financial statements is not to express an opinion on the effectiveness of the entity’s internal control, but in

making these risk assessments the auditor considers internal controls relevant to the entity’s preparation and fair presenta-

tion of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

in our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consoli-

dated financial position of the company and subsidiaries at march 31, 2014, and the consolidated results of their operations

and their cash flows for the year then ended in conformity with accounting principles generally accepted in Japan.

Emphasis of Matter

As described in note 18, at a meeting of the Board of directors of the company held on may 12, 2014, the company

approved the acquisition of treasury stock and the cancellation of treasury stock.

our opinion is not qualified in respect of this matter.

Convenience Translation

the amounts expressed in u.s. dollars, which are provided solely for the convenience of the reader have been translated on

the basis set forth in note 1 to the accompanying consolidated financial statements.

tokyo, Japan

June 27, 2014

Report of Independent Auditors


Corporate Data

DirectoryRegistered Head Office28-8, honkomagome 2-chome, Bunkyo-ku,

tokyo 113-8650, Japan

tel: 81-3-5977-5001

fax: 81-3-5977-5131

http://www.kaken.co.jp

Licensing & Business Developmenttel: 81-3-5977-5046

fax: 81-3-5977-5133

e-mail: [email protected]

Main Branchessapporo Branch

sendai Branch

tokyo Branch

tokyo Branch ii

nagoya Branch

osaka Branch

hiroshima Branch

fukuoka Branch

Plantshizuoka factory

Research Laboratoriescentral Research laboratories (Kyoto)

central Research laboratories (shizuoka)

production technology laboratories

Company InformationIncorporatedmarch 1948

Paid-in Capital¥23,853 million

Common StockAuthorized: 360,000,000 shares

issued: 96,879,461 shares (As of August 31, 2014)

number of shareholders: 11,155 (As of march 31, 2014)

Major Shareholders

shAReholdeRsno. of shARes(thousAnds)

shARe of totAl (%)

the master trust Bank of Japan, ltd. (trust Ac.) 5,121 5.0

toray industries, inc. 4,589 4.5

mizuho Bank, ltd. 3,686 3.6

the norinchukin Bank 3,686 3.6

Japan trustee services Bank, ltd. (trust Ac.) 2,998 2.9

Kaken pharmaceutical employee stock ownership Association 1,743 1.7

the chAse mAnhAttAn BAnK, n.A. london secs lendinG omniBus Account

1,717 1.7

nippon life insurance company 1,530 1.5

ssBt od05 omniBus Account - tReAty clients 1,488 1.5

KyoRin pharmaceutical co., ltd. 1,294 1.3

Employees (Non-Consolidated)Administration: 77

sales & marketing: 977

production & technology: 177

Research & development: 251

Regulatory Affairs: 41

As of march 31, 2014

22.4%

29.7%11.2%

19.0%

17.7% Individuals

FinancialInstitutions

DomesticCorporations

OverseasInvestors

Others

–2.0

–1.1+0.1

+1.4

+1.6

28-8, Honkomagome 2-chome, Bunkyo-ku, Tokyo 113-8650, JapanTel: 81-3-5977-5001Fax: 81-3-5977-5131http://www.kaken.co.jp Printed in Japan

KAKEN

PHA

RMA

CEU

TICA

L Annual Report 20

14

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